Despite Near-Term Volume Weakness, Conagra Shares Offer Investors Long-Term Value

In its fiscal fourth quarter of 2022, no-moat Conagra reported 7% organic sales growth, driven by a 13% increase in price/mix, partially offset by a 6% drop in volumes. This represents an increase in elasticities from the previous quarter (volumes pulled back more on price increases), in line with our expectations, since inflation has been driving consumers back toward private brands, after they traded up to national brands during the pandemic. But this may have spooked investors, with the stock down 7% on the day, which strikes us as an overreaction. While we think private brand market shares will return to pre-pandemic levels over the next year as consumers combat inflation, Conagra’s deep pipeline of innovations and its plans to increase marketing investments should allow the firm to achieve our long-term expectations of 2% annual sales growth and 18% operating margins. We do not expect a material revision to our $44 fair value estimate, leaving shares trading at a 25% discount.